The Impact of Frequent Credit Checks on Your Score: Understanding Soft and Hard Inquiries

Checking your credit score does not affect it because it is considered a soft inquiry. However, when lenders or other institutions check your score, it can result in a hard inquiry, which may impact your credit in minor ways. This article explains the difference between soft and hard inquiries and the potential impact on your credit score.

What Is a Soft Inquiry?

A soft inquiry occurs when you view your own credit report or when a lender or prescreening company checks your credit as part of the prequalification process.

Checking Your Credit Score Personally

When you check your credit score yourself, it is a soft inquiry. These inquiries do not leave a trace on your credit report and have no impact on your credit score. It is your right under the Data Protection Act and Consumer Rights Act to access your credit report without any penalties.

Soft Inquiries by Financial Institutions

On the other hand, if a financial institution, such as a bank, lender, or a credit card issuer, checks your credit score, this is a hard inquiry. Hard inquiries can temporarily lower your credit score by a few points. For example, Chris R from London, mentioned a three-month decrease of his credit score after applying for an apartment.

What Is a Hard Inquiry?

A hard inquiry occurs when a lender or financial institution checks your credit score as part of the loan application process. These inquiries are noted on your credit report and can have a slight impact on your credit score. However, the impact is minor and does not significantly harm your credit score.

Impact on Credit Score

The impact of hard inquiries on your credit score is relatively small. According to credit scoring models, hard inquiries make up only 10% of your credit score. Therefore, adding several hard inquiries, such as applying for multiple loans, could lower your score by approximately 80 points over time. However, frequent hard inquiries can make lenders wary of lending to you, so it's best to limit them to essential applications.

When Are Hard Inquiries Triggered?

Hard inquiries are triggered when financial institutions, such as banks, loan providers, or even insurance companies, check your credit as part of the application process. It could be for loan applications, credit card applications, or even when you are seeking a new apartment or leasing a car.

Strategies to Manage Credit Inquiries

There are strategies to manage credit inquiries and maintain a healthy credit score. Here are a few tips:

Avoid frequent credit checks: If you frequently check your credit score, consider subscribing to a credit monitoring service that allows you to view your credit report regularly without the risk of hard inquiries. Consider your timing: If you need to apply for multiple loans or credit cards, try to space out your applications to avoid triggering multiple hard inquiries in a short period. Check your score before applying: Before applying for a loan or credit card, check your credit score to ensure that your application is likely to be approved.

Conclusion

While checking your credit score yourself is a soft inquiry and does not affect your score, hard inquiries from lenders or financial institutions can impact your credit score slightly. Understanding the difference between soft and hard inquiries can help you manage your credit more effectively and avoid unnecessary hard inquiries. Remember, small steps can have a big impact on your financial health and credit score over time.

Key Takeaways

Soft Inquiry

No impact on credit score Performed by you or prescreening companies No trace on your credit report

Hard Inquiry

Impact minor, up to 80 points Performed by lenders or financial institutions Note on your credit report

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